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What Is a Wealth Tax?

A wealth tax is a type of tax that is imposed on the value of the accumulated holdings of a person. These holdings cover items such as cash, savings (in the bank or other financial institution), insurance and pension plans, investments, businesses, stocks, and securities - among many other things. Other holdings may be included in the calculation of one’s wealth. When computing the amount of wealth tax, the net worth of the individual is taken into consideration. That is, the amount that results from the deduction of the individual’s debts from his overall wealth.

How is wealth tax different from other kinds of taxes - income tax for example? Income tax is perhaps the most common kind of tax that gives people all over the world a headache. This kind of tax is applied to everyone who earns above a certain threshold amount on an annual basis. One drawback to income taxes is the fact that the system can be biased. In some cases, those who earn a smaller income may even pay more than those who earn a larger income. This is because some holdings may not be included in the annual income declaration. On the other hand, wealth tax covers all the holdings even if they are not included in the annual income declaration. This is the argument that proponents of wealth taxation pose.
In some countries, wealth tax is imposed while in others, it is not. In other parts of the world, both wealth tax and income tax are imposed.

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